On the move for better mortgage

Homeowners are being urged to make a move in 2001 - to a better mortgage deal. Experts say that by shaking off standard variable rate loans and remortgaging to cheaper deals, borrowers can save thousands of pounds.

This has been a boom year for remortgaging. Nearly a third of all homeloans taken out in November were remortgages, a trend repeated throughout 2000, according to figures from the Council of Mortgage Lenders. Despite this mortgage switching, millions of homeowners are still paying over the odds. About half of all borrowers pay a standard variable rate of 7.74% when there are discounted and fixed rates as low as 4%. According to new research by Direct Line, homeowners could save a total of £3 billion by switching.

In a survey of 1,000 mortgage customers this month, Direct Line found that an average borrower with a £60,000 loan would be at least £286 a year better off by switching from the standard variable rate. Those with bigger loans fare even better.

Mark Harris, director of mortgage adviser Savills Private Finance in London, says: 'By finding a loan of just two percentage points less than the standard rate, a person on a £30,000 salary with a £100,000 loan could effectively give themselves a 10% pay rise. The saving would be £2,000 a year, which is about the same as a £3,000 pay rise net of tax.'

Despite the obvious gains from switching, many borrowers are deterred by the cost of getting out of an existing loan. Early redemption penalties can cost thousands of pounds and erode the benefits of a new deal. And then there are other costs to consider, ranging from legal and valuation fees to arrangement charges on the new loan.

But fierce mortgage competition means that lenders are encouraging simpler and cheaper switching. Borrowers may face exit penalties on old loans, but many lenders now offer to cover the cost of legal and valuation fees.

Alison and Tim Corcoran from Cheltenham, Gloucestershire, always look for a good mortgage deal. So when Coventry building society launched a website - www.remortgages.co.uk - last month, offering loans with low rates, no fees and no redemption penalties, they signed up.

Alison, 43, a systems analyst, says: 'Not only is the rate fixed at 5.39% for three years, but it has free everything, including no redemption penalty.' The couple calculate that they will save about £200 a month.